IP CloseUp publisher and editor, and Center for Intellectual Property Understanding Chairman, Bruce Berman, is moderating the opening panel at 2:00 pm: The business impact of IP uncertainty and negative attitudes. Panelists include:

Manny W. Schecter (IBM)

Phil Johnson (J&J)

Marshall Phelps (Center for IP Understanding)

Laurie Self (Qualcomm)

Bob Pavey (Morgenthaler Ventures)

“Our patent system may no longer be providing the protection and incentives necessary to entice investors and entrepreneurs to assume the enormous risks that inhere in the creation of many new technologies and new companies,” said Rob Aronoff, IIPCC U.S. Chapter Chair.

“In recent years patent reform initiative have resulted in significant unintended consequences, including a decline in the reliability of patents is contributing to a waning of entrepreneurial energy and a decline in the risk tolerance of American investors and entrepreneurs.

Profound Implications

“This shift has profound implications for the long-term U.S. economy, as China, Korea, Germany and other countries expand the role that patents play in their economies with ambitious plans to displace American dominance of technology in the years to come. This program will explore the direct and essential role that strong and enforceable ‘good patents’ play in allowing investors and entrepreneurs to justify the high levels of risk that drive innovation.”

One of America’s most successful and charitable patent licensing strategists passed away last week.

Eugene M. Lang, describe as “an American folk hero” for his generous philanthropy, grew up on Manhattan’s East 83rd Street in a $12 per month railroad flat.

He went on to donate more than $150 million to charities and institutions during his lifetime for educational causes, including the I Have a Dream Foundation, which he established in 1981;the Eugene Lang College, part of the New School in Manhattan; the Eugene M. Lang Center for Entrepreneurship at Columbia University School of Business; and Swarthmore College, which he entered at 15 on a scholarship.

Much of Lang’s fortune was derived from the Refac Technology Development Corporation, it was reported in his obituary, a public company he founded in 1952 that specialized in the licensing of patents and financing high-tech ventures.

Thousands of Suits

“REFAC held patents relating to LCDs, ATMs, credit card verification systems, bar code scanners, VCRs, cassette players, camcorders, electronic keyboards, and spreadsheets,” reports Wikipedia, “and filed thousands of lawsuits against other corporations to secure licensing fees or out-of-court settlements, a business practice of some very large corporations such as Microsoft and Google as well as large startups such as Intellectual Ventures, and sometimes criticized as patent trolling.“

Some considered Refac International Ltd., known for suing thousands of big and small companies to protect its patents, the model on which other non-practicing entities (NPEs) were based. In 1990, the company was chastised by a federal appeals court in Washington after losing a major lawsuit it filed against 118 Southern California companies selling products with liquid crystal displays.

The New York Times reported that Refac — the name stands for resources and facilities — had made much of its money “by aggressively filing patent infringement suits against companies like IBM and Eastman Kodak and retailers like R.H. Macy and Radio Shack on behalf of inventors of a wide range of products: liquid crystal displays, automated teller machines, bar-code warning systems and spreadsheet software.”

In aletter to The Times[valuable for its historical and factual content], Mr. Lang called the article “grossly distorted” and pointed out that most of the clients represented in lawsuits had sought out Refac after offering licenses to the corporations for their inventions and being turned down.

He illustrated his argument by citing the inventor of the laser who had tried to get industry to recognize his role and succeeded only after Refac won validation of his patents in the courts.

“For Refac, the drama of litigation began in 1975 when Gordon Gould, after battling industry opposition since 1959, asked us to represent his claims as inventor of the laser,” wrote Lang.

“Concluding that Mr. Gould’s claims had genuine merit, Refac, against all odds, accepted the challenge. It took until 1987 and some $4 million, but the courts finally validated every patent of Mr. Gould’s. Despite vituperative reactions from the laser industry – analogous to quotations cited in your article – claims that in 1975 might have been labeled ”all but worthless” now generate annual royalties in excess of $12 million.

Impulsive Gesture

A self-made businessman who flew coach class and traveled on subways and buses, Lang is best remembered for his impulsive gesture in June 1981, when he was invited to deliver the commencement address to 61 sixth graders at Public School 121 on East 103rd Street in Spanish Harlem. He had attended P.S. 121 as a boy 50 years earlier.

He made himself personally available to the students, counseling them when they faced obstacles such as teen pregnancy, addiction, and delinquency. He cheered them at their graduations and helped arrange for jobs. When a student was incarcerated at Sing Sing, he helped him pursue college course work from prison.

In addition to his daughter, Jane Lang, a Washington lawyer and community activist, Lang is survived by two sons, David and the film and stage actor Stephen Lang (Avatar, Conan the Barbarian, Gettysburg); a sister, Barbara Lang; eight grandchildren; and eight great-grandchildren.

In 1996, President Bill Clinton awarded Mr. Lang the Presidential Medal of Freedom.

Not all patent owners agree the Patent Trial and Appeal Board (PTAB) is a fairer forum for vetting patent quality today.

While some believe that the United States Patent and Trademark Office (USPTO) board is no longer the “death squad” that it was described as by the former Chief Judge of the Court of Appeals, most patents subject to multiple inter partes reviews are, with an uncanny frequency, either invalidated or severely weakened. Few, emerge as clear winners.

The USPTO established the PTAB, an administrative law body, as part of the America Invents Act in 2012 to eliminate issued patents that should not have been granted because prior art way overlooked. IPRs are said to be a patent office “second look,” but while patent office re-examinations (an earlier review process superseded by IPRs) eliminated many patents that should not have seen the light of day, they also strengthened some, making them easier to license. To date, IPRs effectively have been a one-way street, eliminating many patents that should not have been issued but ineffective at identifying good ones.

“If you use the PTAB published statistics, they’ll tell you that the institution rate was 50% – because only 1 of 2 petitions was granted. That’s true, as far as it goes. But from the patent owner’s perspective, they used to have 10 claims, and now they have 0. That’s a 100% kill rate!”

“Assume 10 petitions and one institution,” wrote Peter Harter in IP Watchdog. “A 10% institution rate seems terribly biased towards [in favor of] the patent owner. But if all 10 claims get killed, that’s still a 100% kill rate – pretty good for challengers. When both sides think the deck is egregiously stacked against them, it’s easy to see why there’s no middle ground for compromise and improvement. And the way the PTAB is reporting statistics is to blame.”

“The PTAB also now institutes inter partes reviews less frequently,” writes Law 360. “Looking at all institution decisions made by the PTAB, the board decided to institute trials more than 85 percent of the time in the first year after inter partes reviews became available (2013) according to data from the U.S. Patent and Trademark Office, but only 68 percent of the time in its 2016 fiscal year.”

Statistically Valid

The decline in the institution rate may be statistically valid, but some patent holders argue that it does not tell the whole story. The statistics do not explain that some of the worst, most easily invalidated patents came before the PTAB in the first year of its existence, so the institution rate was destined to go down as it became clearer the weakest patents had been terminated.

Results from a November-December 2016 Bloomberg Law and AIPLA research study asserts that “progress has been made in patent owner attitudes towards IPRs.” However, it really depends on which patent owners you ask: those that have large portfolios that they rarely enforce or those with a small number of quality patents that they wish to license.

Brad D. Pendersen, former chair of AIPLA’s IPR Committee and co-author Bloomberg Law-AIPLA’s Patents After the AIA: Evolving Law and Practice (2016) believes that there is an opportunity for patent holders subject to IPRs to strengthen their patents, despite evidence to the contrary.

“Given the potential gold-plated downstream advantages (in litigation and/or settlement) of surviving an IPR (either at the Decision or Institute stage, at the Final Written Decision stage), and given that one-third of patents survive at the Decision to Institute Stage, it is surprising – but not completely unexpected – that some portion of patent owners are starting to look more favorably on the IPR process.”

It is not clear that most patent owners who license would agree with the “gold-plated” reasoning. If it were true, there would be even fewer patent suits and more owners seeking IPRs of good patents. In fact, it is a bit of a mystery what happens to patents that pass PTAB muster. A significant number appears to move on to district court litigation, and there is little data analyzing if they have greater value or fare any better licensing than patents that are less successful running the IPR gauntlet.

Leading IPR Target

Finjan is an example of an IP holder that engages in licensing whose patents are frequently subject to IPRs. The company has fared surprising well in defending itself at the PTAB, but that success does not seem to have translated into significant shareholder success for the cybersecurity company which also frequently out-licenses its patents.

On March 15, 16 and 17, as reported in The Patent Investor, Finjan won three more IPR rulings, involving Palo Alto Networks. Shares of Finjan (FNJN) currently sell at just $1.54. The company has a micro market capitalization of $35M, $18M on 2016 revenues. Its shares are up significantly over 12 months vs. for the S&P 500 Index, but the company, which lost $12.6M in 2015, showed its first profit in 2016, $350K or .02 per share. Finjan has executed a difficult IP strategy. If successful IPRs have gold-plated its patents, the value has yet to shine through.

Finjan was the fourth most IPR’d patent holder in 2016 and the third most in 2015. It is the most successful company in successfully defending against IPR petitions. Of 47 total IPRs against Finjan patents to date, 32 have been denied institution.

With that track record at the PTAB, one would think Finjan would have a field day licensing its patents, but the IPRs continue to come, and it still must win hard-fought victories in district court litigation. In September, a California jury found that cybersecurity firm Sophos infringed all eight patents asserted in a lawsuit brought by Finjan over software that identifies new computer viruses, awarding the company $15 million in damages.

“We have a portfolio of patents that has been proven durable in light of the increasing number of administrative pathways to challenge validity largely due to two factors,” says Finjan CEO, Phil Hartstein. “First, our patents were developed jointly and alongside product development of technology that was disruptive to a market. Second, we do not deviate from the intrinsic record of the assets themselves and vigorously defend our patent rights on the merits.”

Coordinated Challenges

Editor and patent attorney Gene Quinn of IP Watchdog believes that Finjan and other businesses that attempt to out-license their patents are frequently subject to repeated, coordinated attacks.

“At least several patent owners, including Finjan, are routinely subject to serial, harassing IPR challenges,” writes Quinn. “The Patent Office doing something about harassing IPR challenges is long overdue. If the Director is not going to exercise the discretion vested in that Office by the America Invents Act (AIA) hopefully more panels of the Board will take it upon themselves to do just that.

“Patent owner harassment needs to stop. Patent owners shouldn’t have to be subjected to many dozens of IPR challenges before someone recognizes there is coordinated harassment – perhaps even collusion – against certain patent owners who have the audacity to want to be paid for blatant, ongoing, willful infringement.”

23 IPRs Filed on a Single Patent

Zond makes plasma generators, the kind used in manufacturing semiconductors. Pulsed DC plasma generators for magnetron discharge were first introduced in the late 1990s to reduce arcing during for the purpose of improving the quality of thin-film materials. A big breakthrough came in September 2002, when Zond applied for what it describes as a “revolutionary” pulsed technology approach.

Zond is a Massachusetts-based company that wholly owns Zpulser LLC, which commercializes its patent technology by making and selling high-power plasma generators. The patent at issue relates to methods for generating magnetically enhanced plasma.

Over the last three years, Zond’s patents have challenged an average of 12.5 times in IPRs and as many as 23 times. The patent research firm, Patexia, writes that it is difficult for holders of good patents to survive multiple IPR challenges. In the case of Zond, it has made licensing pretty much impossible.

A study last year, reported in Law 360, showed that Zond’s patents have been challenged in AIA reviews more than those of any other patent owner, including largest patent licensing company, Intellectual Ventures, which owns more than 70,000 patents and took second place on the list.

Were potential licensees and defendants in patent suits lining up against Zond’s patents because they were bad and its case without merit, or did they want to destroy some potentially good patents that would have cost them to license?

“Some have been suggesting that solely relying on the denial rates reported by the patent office is not enough to conclude that patents are surviving the IPR challenge,” writes Sameni. “Many have called PTAB, the patent death squad. Our study shows that in some cases, patents are challenged many times.

“The reality is that it only takes one successful IPR to completely kill all the claims of one patent. Therefore, the case-level status is not the best indication of PTAB performance and patent survival rate. While as IPR’s Final Written Decision usually means that some of the claims were invalidated, it does not necessarily mean that all claims were canceled.”

Not the Full Story

If claims still exist, they could be threats. And potential licensees/defendants will go to lengths to “kill” a patent to avoid paying a license or being dragged into court, including teaming on multiple petitions. Repeat IPRs are an efficient way to make a potential infringement suit or royalty payment disappear for multiple parties.

“The statistics that show that the PTAB is becoming fairer for patent holders do not tell the full story,” a prominent NPE told IP CloseUp. “IPRs are frequently unfair fights between several, well-funded petitioners and a single patent owner who has to run the gauntlet, repeatedly. Surviving an IPR doesn’t mean anything if subsequent challenges can be filed at any time, especially in coordinated fashion.”

Once a patent is challenged multiple times with different prior arts, it is highly unlikely that any of its claims will survive – no matter how good it is.

“The PTAB may not be a death squad, but challenged patents are put in a kind of headlock that can render them useless. Where are the patents that emerge from IPRs generally intact or whose petitions against them for review are not instituted? They should be eminently licensable, but they are nowhere to be found. The ‘normalization’ statistics that are being cited to show that the PTAB is becoming a fairer forum for patent holders are highly misleading.”

Lack of Uniformity

Another patent licensing business, one whose petitioned patents have survived multiple IPRs, still believes that the lack of uniformity among the many PTAB panels and administrative law judges is a major factor in the continued unfairness that has effectively destroyed patent licensing for many companies and independent inventors.

“It’s difficult to predict how the PTAB will rule,” says the executive, a lawyer. “The first year or two that patents were subjected to IPRs there was a lot of low-hanging – really, rotting – fruit. Those petitions were almost universally instituted, and many bad patents were appropriately eliminated.”

“But anyone can file and IPR and they can keep filing them. Reliable patents don’t seem to emerge from the process, only ‘bad’ ones, which are eventually neutralized. Few patent holders have the time or money to repeatedly defend themselves in IPRs. This has made otherwise licensable patents pretty much worthless and daily infringement, at least to some, an acceptable way of doing business.”

Many law firms still seek to participate in the outcome of clients’ patent litigation, but few are willing to share the cost of obtaining and maintaining invention rights, which frequently turn out to be worthless.

A new book by an innovative Colorado attorney and inventor suggests that patent lawyers need to have more skin in the prosecution game, and that filing patents just to have them is a waste of their client’s time and money.

Recent studies indicate that 30 percent of U.S. “unicorns” (start-ups with greater than $1B in valuation) have no patents and 62 percent have fewer than 10 patents.(David Kappos, et al. the New York Law Journal)

Investing in Patents, deceptively spare at just 139-pages, is relevant to all patent filers, lawyers and investors, in addition to young companies, many of which are choosing to forgo patent protection. (See excerpt from The New York Law Journal article above.)

Patents are more expensive than ever, just over $56,000 for the average one over the course of its life. Defending them has reached new highs of cost and risk. A case through IPR(s) to trial can cost several million dollars and require more than five years, with a reduced likelihood of success.

Average Cost of a Patent Over its Life – $56,000

Engineer, Inventor, Financier

Investing in Patents is available at Krajec.com or on Amazon.com,here. In addition to being a patent attorney who has worked for H-P and other companies as a practicing engineer, Krajec has more than 40 patents to his name and, earlier in his career, was a USPTO patent examiner. He also runs BlueIron, LLC, an IP finance and management company.

While the suggestion of joint or fractional patent ownership is compelling, it is not entirely new or simple. As in most agreements, the devil is in the details.

It is unclear how Krajec believes ownership of a patent should be divided and who has the right to license, enforce, sell or otherwise leverage it – and when. Perhaps, most importantly, who gets to define success?

Given the current high-risk/low return scenario for obtaining and licensing patents most high-tech patents, this lawyer’s ownership alternative may be just what is needed to realign interests and enhance performance.

Public IP licensing companies (PIPCOs) are very much alive and some company shares are doing surprisingly well, despite increased obstacles to patent licensing.

PIPX reported a 20.4% gain for the 3Q vs. just 3.3% for the S&P 500.

It was the PIPX’s best performance since the index began tracking IP licensing companies in 2011. The PIPX is a capitalization-weighted, price-return measure of the change in value of this segment of publicly traded companies.

“InterDigital and Tessera, comparative giants in market value, were responsible for 20% of the index move,” said Dr. Kevin Klein, Vice President and GM of Products and Licensing at VORAGO Technologies, who compiles the data. “Acacia was the biggest individual gainer, up 48.2%; WiLAN was the biggest loser, down 39.4%. ”

High Volatility

It is difficult to attribute any one specific factor to the record quarter. However, PIPX has been volatile, and somewhat counter-cyclical since its inception. The index could be seen as a hedge against S&P 500 performance. Additionally, patent licensing and sales have started to come back, and patent damages awards are being paid, although at reduced amounts.

The Patent Trial and Appeal Board has been instituting fewer Inter Partes Reviews (down to about one-third of petitions filed), but is still seen by many as a somewhat arbitrary impediment to patent licensing and enforcement.

The value of $1 invested in the S&P 500 in Q3 2011 would now be worth $1.62 while the value of the same $1 invested in the PIPX would be $0.68.

PIPX Performance by Quarter

Added to the index is FORM Holdings (NASADQ: FH), a diversified holding company that specializes in identifying, investing in and developing companies with superior growth potential. Removed were Vringo, which was absorbed by FORM Holdings, and Unwired Planet, which was delisted on June 18.

Most patent holders would agree that licensing patents for revenue has gone from bad to awful — from difficult less than a decade ago, to virtually impossible today.*

Determining if the courts and lawmakers have facilitated improvements or simply over-corrected for weaknesses in the patent system largely depends on whom you ask, and when.

While obvious to some, the fairness of the U.S. patent system is no longer apparent to all.

In 1996, the days of the first tech bubble, there was some uncertainty regarding patent validity. Patent licensing was not easy back then, but it was viable and still could be conducted on a business basis. Out-licenses could be negotiated without first filing suit, and significant damages awards were occasionally paid, although not as frequently has some would have us believe. The threat of an injunction that would freeze product sales was still a very potent weapon for those considering enforcement.

Things became very difficult in 2006 (high uncertainty), when injunctions became virtually impossible to obtain and NPEs, the businesses that tended to enforce the best patents most frequently, were characterized as a virulent strain of a disease that needed to be eradicated. Lost in defendants’ anger is that those who enforce valid patents may actually facilitate innovation and competition, and play a positive role in job creation.

Weighing In

Weighing in on whether the over-corrected patent pendulum has finally started to swing back towards the middle are Brian Hinman, Chief IP Executive at Philips, and Ashley Keller, Managing Director at Gerchen Keller Capital. In “Balancing Act,“ in the May Intangible Investorin IAM, they speculate on what it will take to move the patent pendulum more toward the middle where it belongs.

In 2016, with the emergence of an extreme degree of uncertainty, patent licensing became virtually impossible. (Degree of uncertainty licensing can be compared to “degree of difficulty” in a gymnastics competition, although their are no bonus points for successfully enforcing an infringed patent.) Of no help was the rise of preemptive, defensive litigation (declaratory judgments), forcing many patent holders to sue first and (maybe) talk later.

Factors responsible for patents’ loss of reliability include the American Invents Act (AIA) which permitted Inter Partes Reviews (IPRs), litigation-like, post-issuance examinations of patents that invalidated many invention rights filed under previous guidelines and slow enforcement. A number of district court, Court of Appeals for the Federal Circuit (CAFC) and United States Supreme Court cases have gone against patent holders wishing to license for revenue, including the Alice decision, which rendered many software patents and business methods invalid.

Another major set-back is Non-Practicing Entities or NPEs, also known as patent “trolls” or owners who do not commercialize or sell products but hope to generate ROI through royalty payments. All NPEs have been lumped together and have been universally demonized as “black hats” who are the primary source of all that ails the U.S. patent system and that wish to enforce questionable rights and shake down otherwise innocent companies wishing to avoid costly disputes.

However, many of the largest corporations engage similar practices themselves (aka privateers), while decrying other NPE’s. As a result of the actions of anti-patent proponents — many large patent holders themselves — patents have become even more uncertain, and litigation longer and more costly. NPEs continue to be held responsible for the need for more anti-patent legislation, and have become a sort of obsession for some businesses and lawmakers wishing to re-frame the discussion and absolve many tech companies of serial theft.

According to Patent Progress, “a project of the Computer & Communications Industry Association (CCIA)” that endeavors to limit patents reach, there are six bills currently before Congress that still endeavor to reel-in or otherwise weaken patents and deter enforcement.

Only one piece of patent legislation, the STRONG Act, which is before the Senate, attempts to roll back some of so-called improvements introduced over the past several years, much of which in retrospect looks like an overreaction to a much smaller problem.

Fourteen bills were introduced in the 113th Congress (2013–14) alone to deal with one or more aspects of the patent troll issue. For a list of these and other bills, go here. Computer and Communications Industry Association members include Amazon, Facebook, Google, Microsoft, Red Hat and Samsung.

More and Higher Hurdles

The diagram below, “Patent Licensing: Higher Hurdles for Protecting New Ideas,” is a graphic reminder of the progressive number and nature of impediments added since 1996 that discourage the licensing of U.S. patents. It was prepared by Brody Berman Associates for a client who has given permission for it to be shared. Key court decisions diminishing patent value and creating more uncertainty can be seen in a second slide below.

“Risk-Adjusted Theft”

For technology companies the era of the licensing discussion is all but over. Uncertainty has never been greater, nor has hostility to owners offering an invention for license, no matter how good the patents or fair the terms. This leaves no alternative but to litigate.

“Efficient” infringement, a term we are hearing more of lately, is really a kind of risk-adjusted theft. Simply put, the deck is all but stacked against patent licensors (who are now forced to sue) because it is more economically viable today for most businesses to steal what they use than pay for it.

The courts, lawmakers and media will need to start soon if the damage that has been done to patent licensing is to be reversed. The Supreme Court decisions below speak volumes for the imbalance and how far patents have to go to bet back to the middle. It is not so much that Alice made software unpatentable as it rendered most existing business methods and many software patents invalid under the narrower guidelines that the Court established.

If proponents of fewer and lower hurdles feel the system has over-corrected and is doing damage, they had better turn up the volume. The courts, legislators and even most patent holders do not appear to be listening.

*My gratitude to Irv Rappaport who assisted in writing this article. Irv has served as the head of IP departments at Apple, National Semiconductor and Medtronic, and was a consultant to Intel responsible for suggesting the Intel Inside® campaign. He has served as an expert witness more than 70 cases and is named more than 20 U.S. patents. He also served as a USPTO patent examiner and a U.S. Army officer.

A California jury has awarded pharmaceutical drug company Merck $200 million, a fraction of what it had sought, for infringement of two of its patents by Gilead Sciences, which based in the San Francisco area.

The jury based the $200 million award on a royalty rate of 4 percent on $5 billion in sales, compared with the 10 percent royalty on Gilead’s past sales of more than $20 billion sought by Merck. This is as reported in Law 360.

In calculating damages, jurors said they sought a middle ground. “We worked to get to something we could all agree so we weren’t hurting one side or the other,” juror Cody Shump, a 20-year-old San Jose resident, told Reuters.

“NPE 2016: The Business of Responsible Licensing,” scheduled for March 22 at the Convene conference in New York, will differentiate patent monetization companies by examining their business models, strategies and the managers who run them.

The conference will focus on the non-practicing entity (NPE) industry, including both public and private companies. In 2015, the NPE 2016 brought together leaders from the licensing company sector and the wider corporate IP and investment communities to discuss the challenges and opportunities of running a patent licensing business, especially in today’s challenging climate.

NPE 2016 is the only gathering that examines how NPEs operate and contribute to the innovation and the economy.

Moderator-led panel discussions with audience Q&A at the end of each will be featured. Sessions are designed to focus on the specifics of building and running successful NPE, as well as on the opportunities available to investors.

Beyond Monetization

This year’s sessions will consider licensing best practices, building and managing a patent portfolio, licensing dos and don’ts, litigating in Europe once the Unified Patent Court has been launched, licensing opportunities in new sectors and moving IP commercialization beyond monetization.

A recently published Harvard Business School working paper found that financial services patents lack quality because they lag their peers in academic citations.

“Financial Patent Quality: Finance Patents After State Street” findings indicate that financial services patents are questionable with regard to their references to academic prior art. The study’s findings also show that patents awarded to individuals and associated with non-practicing entities (NPEs) cite less academic prior art, and that financial services patents with fewer of these citations are more likely to be asserted in litigation.

The research also shows that financial services patents cite less non-patent prior art, and especially less academic prior art.

Patents assigned to individuals and NPEs were particularly problematic with respect to academic citations.
Having fewer academic prior art citations, the HBS study indicates, directly correlates to the likelihood of a financial services patent being the subject of litigation.

Not all patent professionals agree that the number or type of citations play a significant role in determining patent quality or the likelihood that a patent will be enforced.

Patents awarded to corporations generally cite more prior art, particularly academic research than do those awarded to individuals or associated with NPEs.

Citations of academic prior art are strongly related to whether a finance patent is litigated. In particular, financial services patents with more academic citations, one indicator of higher quality, were subject to less litigation.

The HBS working paper was sponsored by Askeladden L.L.C. as part of its Patent Quality Initiative,an education, information and advocacy effort with the goal of improving the understanding, use and reliability of patents in financial services and elsewhere. Askeladden is a subsidiary or The Clearing House, the oldest banking association in the United States.

According to Bloomberg BNA the study selected finance patents from specific subclasses of the PTO’s classification code 705, titled, “Data Processing: Financial, Business Practice, Management, or Cost/Price Determination.” Most of the claims of the finance patents involve data processing on generic computing equipment and are, thus, likely to be claimed as software algorithms.

Opportunities still exist to monetize patents for those willing to do their homework and adjust expectations, veteran patent licensing executive Bob Bramson, a WiLAN director, told IP CloseUp in an exclusive interview.

There is a common theme running through Rockstar’s recent $188M settlement with Cisco, its litigation against Asian handset makers, including Samsung, and sale of 4,000 patents to a group led by RPX for $900M: Patent holders with solid patents and realistic expectations can still find success.

Despite impediments like IPRs, software-adverse decisions like CLS Bank v. Alice, and aggressive anti-NPE lobbying, significant patent agreements are stilling being transacted. The key to their success, says Bramson, who is responsible for more than 1,000 patent licenses and sales over a 40 year career, is quality and need.

“Licensing is about money,” says the patent attorney and strategist who was recorded in our offices in late December. “Surely, the sugar-plum visions of a few years ago need to be rethought, but that does not mean there aren’t good opportunities out there for those willing to conduct the necessary due diligence. Patent monetization is about risk and reward, and if after careful analysis the potential damages are still there, then you at least have the basis of discussion. The last thing a patent monetizer wants to do is win the battle but lose the war.

“Rumor has it that the Rockstar deal got done because of pressures exerted by some of their investors, notably Apple and Microsoft. There is a complex network of relationships and needs that fuel agreements between big parties, and direct revenue is frequently only a part of it.”

Patent Value in Perspective

While it’s difficult to calculate the precise current value of Rockstar (the company) based on its December 23rd patent sale to RPX, it is safe to say that it is a quarter to a half of the $4.5B that it’s investors, Apple, Microsoft, Sony, Ericsson, EMC and

Blackberry, paid in 2011. That said, $1B to $2B value on a single patent portfolio in the current anti-enforcement environment is nothing to sneeze at.

These investors also had complex needs and unique resources, the most important of which appeared to be keeping the patents out of Google’s hands. In Apple and Microsoft’s case, they also had huge amounts of cash on their balance sheet to deploy.

“I expect that there will be a clearing out of patent monetization businesses in the next couple of years,” continues Bramson, who founded and served as CEO of InterDigital Technology Corp. “But that’s not to say there aren’t still opportunities out there. Smartphones are one of many industries that rely on patents to compete. Sectors like medical technology and smart cars are heating up, and 3-D printing is likely to be huge.”

ParkerVision v. Qualcomm is a unique patent dispute…

pitting two public IP licensing companies (PIPCOs) with decidedly different business models against each other. The case underscores an a weakness in the public IP licensing model. It can be addressed by providing better information about how the patent system works and managing shareholder expectations.

Qualcomm (QCOM), a certified tech giant that licenses chips used in practically every smart phone sold, and derives billions in profit from patent licensing. ParkerVision (PRKR) is a relative David vs. giants, with excellent rights but more than $20 million in annual losses. It hast has never turned a profit.

Nose Dive

ParkerVision shares were down as much as 60% yesterdayon almost 30 times its average daily volume because a Florida Central District Court in Orlando ruled that Qualcomm did not infringe willfully and that the damages award was “only” $173 million, about half of what was expected.

PRKR was up 75% on October 17, trading as high at $7.38 when the validity of its patents were upheld by the court last week. PRKR had sought damages of $432 million and a wilfulness verdict, which would have possibly tripled the award.

The market speculation regarding the damages that PRKR could have won led to extreme volatility. Trading in PRKR shares was halted Wednesday afternoon pending the outcome of the court’s damages ruling. Ironically, a few other public licensing companies halted trading, too, in anticipation of the decision.

Costly Confusion

The audience that benefits most from confusion are the short sellers, who sometimes bid stocks up then bet they will dive, without concern for the fundamentals, or, for that matter, the facts. As long as the shorts are a step ahead of other investors’ timing they usually wind up winning. Investment bankers also may benefit from higher market capitalization because it increases the prospect of underwriting secondary or debt offerings.

One significant patent holder told me that a JP Morgan had pegged the potential damages award with a willfulness finding as high as $2 billion. Flame fanning of this nature merely preys on those already confused about patents and the patent system, and is a blow to PIPCO credibility and long-term acceptance and reliability.

That the market saw this otherwise resounding and well-deserved win in court as a something less than a significant success suggests a failure many to manage expectations. It can only serve to undermine confidence in IP-centric stocks.

ParkerVision, founded in 1989 designs, develops, and markets proprietary radio frequency (RF) technologies and products for use in semiconductor circuits for wireless communication products in the United States.

The court ruled that Qualcomm infringed on four patents of ParkerVision’s related to radio-frequency receivers and the conversion of electromagnetic signals in wireless devices and improperly used them in Qualcomm’s semiconductor chips.

Back in February, after a positive Markman ruling against Qualcomm, ParkerVision’s stock price rose 73%, from $2.43 to $4.21. PRKR’s market cap was around $300 million for most of 2013 and was recently as high as about $700 million. IP investors will recall a spike in InterDigital’s (IDCC) shares after Google bought Motorola for $12.5 billion, temporarily increasing its value by over $1 billion.

PwC includes a wealth of litigation trends and statistics, as well as data on which courts are more favorable to plaintiffs and defendants. Aron Levko led the PwC team that conducted “A Closer Look.”

Among the key findings:

• Damages awards for NPEs have averaged more than double those for practicing entities since 1995.

• NPEs have been successful 29 percent of the time overall versus 41 percent for practicing entities, due to the relative lack of success for NPEs at summary judgment; however, both have roughly a 2/3 win rate at trial.

• The disparity between jury and bench awards has widened and is likely the contributing factor in the significant increase in use of juries since 1995.

• While the median time-to-trial has remained fairly constant since 1995, significant variations exist between jurisdictions.

For the latest news on patent licensing companies click below:

Advertisement

Advertisement

Advertisement

Advertisement

Advertisement

Follow IP CloseUp

Follow us on Twitter & LinkedIn & Facebook

Advertisement

Advertisement

Advertisement

Advertisement

Advertisement

About Bruce Berman

I'm a long-time intellectual property observer, adviser and editor, who is in close close contact with the leading holders and most influential people. I track the latest trends and developments, and monitor patent and other IP transactions, strategy and performance.

Since 1988 I have been working with IP holders, managers, lawyers and investors to properly explain the importance of their assets to key audiences, frame disputes and convey transactions.

My five books, including the IP best-seller FROM IDEAS TO ASSETS, deal with IP rights as business assets. THE INTANGIBLE INVESTOR, the column I have been writing for IAM Magazine since 2003, looks at ways IP rights impact stakeholders. For my complete bio visit www.brodyberman.com or click on the link below.